FY20 Water and Sewer Rates Analysis Recommendation ReportThe recommendations made in this report...

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1 FY20 Water and Sewer Rates Analysis & Recommendation Report Prepared by: Chase Berkeley, P.E., DPW and Woodard & Curran Town of Milton August 5, 2019

Transcript of FY20 Water and Sewer Rates Analysis Recommendation ReportThe recommendations made in this report...

Page 1: FY20 Water and Sewer Rates Analysis Recommendation ReportThe recommendations made in this report will consider ... use in final rate setting Direct Costs $4,812,260 Indirect Costs

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FY20 Water and Sewer Rates Analysis

&

Recommendation Report

Prepared by:

Chase Berkeley, P.E., DPW and Woodard & Curran

Town of Milton

August 5, 2019

Page 2: FY20 Water and Sewer Rates Analysis Recommendation ReportThe recommendations made in this report will consider ... use in final rate setting Direct Costs $4,812,260 Indirect Costs

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Introduction

For Fiscal Year 2020 (FY20), Milton intends to keep the water and sewer rate methodology which allows for a multi-tier system that encourages water conservation and shifts the cost of water and sewer to those users with larger demand on the systems.

Four Tier Structure

Almost a decade ago, the Town transitioned from two tiers to four tiers in an effort to promote water conservation and help reduce future MWRA annual assessment costs. The structure was based upon a detailed breakdown and classification of varying user consumption brackets. The four-tier consumption brackets separate the Town into four (4) user classifications based on usage.

The recommended four-tier rates for FY20 are similar to those in use for almost a decade and are intended to continue promoting water conservation throughout Town by ensuring low volume users pay considerably lower rates per unit than the high-volume consumers. The middle tiers (as opposed to just a high and a low tier) give higher volume users a more obtainable goal for cutting usage and requires them to bear the cost of the higher demand on the system.

Many factors determine how much water any particular residential consumer uses, namely the amount of irrigation, swimming pools, and the use of water saving devices and techniques. Typically, the biggest determining factor in water consumption is size of family. A family of four will generally use more water than a family of two. Therefore, looking at the rates in terms of the cost per-person can be helpful in determining whether an increase is fair and equitable. The recommendations made in this report will consider the impacts on the range of Milton residents and the equity of any proposed increase.

In 2016, the Milton Board of Selectmen addressed a billing inequity question which was raised by owners of multi-unit residential buildings. Historically, these types of facilities are served by a single water meter, which would nearly always result in a Tier 4 billing rate. The Selectmen were asked to consider adjusting the total water consumption in larger multi-family facilities by dividing it by the total number of units served by the single meter. That result could then effectively lower the rate at which water is billed to a lower “effective tier”. Upon approval by the Board of Selectmen, in FY16, the Department of Public Works implemented a new billing calculation for multi-unit residential buildings containing more than 4 dwelling units. That billing calculation, in fact, uses the number of units to establish proportionally sized volumetric tiers, and then these tiers are used in the calculation of these customers’ bills. Revenues and Expenses

In determining water and sewer rates the primary goal is to match revenue to expenses. Town Meeting Warrant Articles 16 and 17 represent a projection of the Town’s direct, indirect and capital expenses, as well as a projection of revenues for FY20. These tables are based on similar tables presented in previous Town Meeting Warrants, updated to include FY20 Budget approvals and the FY20 MWRA Assessment.

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ARTICLE 16 for the Water Enterprise is presented below in summary form (including the Preliminary MWRA Rate Assessment):

FY 2020 WATER

Costs

Figures for

use in final

rate setting

Direct Costs $4,812,260

Indirect Costs $550,000

Capital & Debt Service $1,560,891

Total Utility Cost $6,923,151

Revenues

Rate Revenue Needed $6,523,151

Fund Balance Transfer $200,000

Non-Rate Revenue $200,000

Total FY18 Projected Rate

Revenue $6,923,151

ARTICLE 17 for the Sewer Enterprise is presented below in summary form (including the Preliminary MWRA Rate Assessment):

FY 2020 SEWER

Costs

Figures for

use in final

rate setting

Direct Costs $6,757,669

Indirect Costs $600,000

Capital & Debt Service $1,053,829

Total Utility Cost $8,411,498

Revenues

Rate Revenue Needed $7,996,498

Fund Balance Transfer $200,000

Non-Rate Revenue $215,000

Total FY18 Projected Rate

Revenue $8,411,498

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In the Articles on the preceding page, Direct Costs include the Preliminary MWRA Assessments ($3,558,000 Water, $5,841,804 Sewer) which represent the only numbers available at the time of the FY20 Budget preparation and Town Meeting. The final MWRA Assessments became available on June 13, 2018 (after the closing of Town Meeting). Final MWRA Assessment of $3,508,795 (less than the Preliminary Assessment) for water and $5,736,340 (less than the Preliminary Assessment) for sewer. However, the FY20 rates MUST be based upon the figures contained in the Annual Town Meeting Warrant.

Rate Calculation

Presented on the following page are the four-tier rate structure calculations for both water and sewer in FY20 as well as a series of charts showing the water and sewer consumption trends from FY17 – FY19. Following the rate calculation sheets are a series of charts which illustrate water consumption and sewer usage trends within Milton, based upon actual FY17 - FY19 metering data.

Given the variable nature of water consumption, the success of a rate structure in generating revenues matching the actual cost of providing water and sewer utilities may require mid-year adjustments. Forecasts and actual consumption and receipts should be reviewed after 6 months (or two cycles of quarterly billing) to assess the position of the rate structure strategy at that point. As had occurred in the past, actual metered water use may be impacted and strongly affected by seasonal fluctuations as well as by weather related variation, which is especially true for irrigation accounts.

Page 5: FY20 Water and Sewer Rates Analysis Recommendation ReportThe recommendations made in this report will consider ... use in final rate setting Direct Costs $4,812,260 Indirect Costs

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Page 6: FY20 Water and Sewer Rates Analysis Recommendation ReportThe recommendations made in this report will consider ... use in final rate setting Direct Costs $4,812,260 Indirect Costs

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*- Tier 4 Consumption Values for FY15 through FY17 include an adjustment to reflect the impact of the change in large multi-unit billing procedures.

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

40,000,000

45,000,000

2012 2013 2014 2015* 2016* 2017* 2018* 2019

Water Consumption Trends

Tier 1 Consumption Tier 2 Consumption Tier 3 Consumption Tier 4 Consumption

0

5,000,000

10,000,000

15,000,000

20,000,000

25,000,000

30,000,000

35,000,000

2012 2013 2014 2015* 2016* 2017* 2018* 2019

Sewer Consumption Trends

Tier 1 Consumption Tier 2 Consumption Tier 3 Consumption Tier 4 Consumption

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28%

45%

9%

18%

Average Tiered Water Consumption

Tier 1 Consumption

Tier 2 Consumption

Tier 3 Consumption

Tier 4 Consumption

31%

50%

6%

13%

Average Tiered Sewer Consumption

Tier 1 Consumption

Tier 2 Consumption

Tier 3 Consumption

Tier 4 Consumption

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Rate Impact Analysis.

To assess the true dollar impact associated with the proposed changes to the water and sewer rate tables, an impact analysis was completed based upon eight separate hypothetical customer accounts. The eight accounts were selected to give a cross section of Milton water users/families and assess the impact of the recommended rate changes for each type of user. Characteristics of each type of account are briefly described below:

Case 1: Single adult living in Pine Tree Brook Neighborhood (using 600 CF per Quarter)

Case 2: Two adults living in the Town Center area (using 1200 CF per Quarter) Case 3: Two adults with one child under the age of 16 living in Pine Tree Brook

Neighborhood (using 2200 CF per Quarter) Case 4: Two adults and two children in the upper Canton Avenue area (using 2800

CF per Quarter) Case 5: Two adults and two children living in the St. Mary’s church Neighborhood

(using 3600 CF per Quarter) Case 6: Four adults and one child living in the Town Center area (using 5300 CF

per Quarter) Case 7: Six adults living in East Milton (using 6000 CF per Quarter) Case 8: Two adults and five children living in the Columbine area (using 8300 CF

per Quarter) MRWA: The MWRA’s “average” family of four, used by communities for

comparison purposes (using 3000 CF per Quarter)

Page 9: FY20 Water and Sewer Rates Analysis Recommendation ReportThe recommendations made in this report will consider ... use in final rate setting Direct Costs $4,812,260 Indirect Costs

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Rate Discussion.

The water and sewer structure calculations are based upon the same fixed revenue requirements (noted in Articles 16 and 17), the average number of water and sewer bills administered and collected during FY17 – FY19. The water rates are based upon the following: a projected rate revenue requirement of $6,523,151 and 92,827,026 units of billed water service. The sewer rates are based upon the following: a projected rate revenue requirement of $7,996,498 and 67,004,642 units of billed sewer service. Four-Tier Progressive System: The four-tier progressive rate model breaks users into four user categories:

Tier Usage (per Quarter)

Tier I 0 – 600 CF

Tier II 601 – 3000 CF

Tier III 3001 – 6000 CF

Tier IV 6000+ CF

The basis behind the four-tier progressive approach is that a user will pay each tier rate as their water usage progresses through the tiers. For example, (refer to the table on the following page) if a family consumes 4500 CF of water per quarter the bill would include paying the Tier I rate for the first 600 CF of usage, then the Tier II rate for the next 2400 CF of usage (601 to 3000 CF) and the Tier III rate the remaining 3001 – 4500 CF. The average family of four (MWRA) would expect to see an average water and sewer rate increase of 5.9%, the lower volume users (Case 1) would see a rate increase of 6.3% and the high-volume users (Case 8) would see a 5.8% increase. The recommendations are intended to be equitable adjustments since it continues to maintain Milton’s overall goals of having consumers who use less water pay less per unit, encouraging conservation, and maintaining a substantial discount for fixed income elderly consumers, who generally use less water.

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Recommendation

Based upon the Fiscal Year 2020 revenue requirements and the historical consumption patterns, the Department of Public Works recommends the following four-tier water and sewer rates as a result of this analysis.

Cubic Feet FY2020

Water Rate

FY2020

Sewer Rate

0 – 600 CF $5.99 $7.16 601 – 3,000 CF $7.24 $13.49 3,001 – 6,000 CF $7.98 $14.85 6,000 + CF $8.48 $15.87